Stocks rallied sharply in the late session yesterday, as volume surged. All five major indices ended higher, with the Nasdaq (NASDAQ:QQQ) Leading the advance. By the close, the high tech index had marched 1.1% higher. The S&P MidCap 400 and the small-cap Russell 2000 (NYSEArca:IWM) posted strong gains of 1.0% and 0.9% respectively. The S&P 500 (NYSEArca:SPY) also advance by 0.9%, while the Dow Jones Industrial Average (NYSEArca:DIA) added a solid 0.7%. The gold and silver sector reversed dramatically yesterday, breaking a multi month downtrend. Other sectors exhibiting relative strength included oil, oil services and real estate. The sectors that underperformed on the day were solar energy, banking and pharmaceuticals.
Market internals fell solidly in the bull camp yesterday. Volume rose dramatically on both exchanges. By the closing bell, volume was higher on the Nasdaq by 19.5% and on the NYSE by 15.6%. Advancing volume outpaced declining volume by a margin of 3.5 to 1 on the NYSE and 2.2 to 1 on the Nasdaq. When price action, volume and advancing volume are all moving higher, it points directly to institutional accumulation. Today was clearly an accumulation day on Wall Street.
The SPDR S&P Regional Bank ETF (NYSEArca:KRE) was one of the first ETFs to find higher ground in the first leg of this recent rally. Although it has been showing weakness to the market over the past several days, KRE has been consolidating in a tight range. This type of basing action is exactly with strong ETFs do prior to another move higher. On Tuesday, KRE undercut support and formed a distinct reversal candle and given today’s positive price action, it appears ready for a move higher. A surge above the three day high at $26.72 could provide a buy entry trigger for KRE.
Yesterday, the SPDR Gold Trust (NYSEArca:GLD) smashed through its downtrend line on a massive spike in volume, and is now well positioned for a move higher. The iShares Silver Trust (NYSEArca:SLV) showed similarly impressive price action, as it also moved higher in dramatic fashion. Notice however, that the charts for GLD and SLV are somewhat different in terms of support and resistance levels. The chart of GLD clearly shows that this ETF never broke its long term downtrend line, whereas SLV lost support of its long term downtrend in late September, 2011. This tells us that GLD has relative strength to SLV and is likely the better long candidate. Now that GLD has rallied above its downtrend line, we will be looking for a pullback for a potential long entry.
All of our open positions performed well yesterday, with IYT and IYR showing the most relative strength. Late in the session, both DVY and XLP hit their respective triggers and we entered both trades. Intraday alerts were sent to confirm for both trades. Trade details are available in the open positions segment of the newsletter. Yesterday’s move was impressive and brought the DJIA, Nasdaq and S&P 500 within striking distance of the highs set in the spring of 2011. Although we see further upside for this market, an overcut of last year’s highs could bring selling pressure back into the market.
The commentary above is an abbreviated version of our daily ETF trading newsletter, The Wagner Daily. Subscribers to the full version receive specific ETF trade setups with detailed trigger, stop, and target prices, as well as daily updates on all open positions. Intraday Trade Alerts are also sent via e-mail and/or text message, on as-needed basis. For your free 1-month trial to the full version of The Wagner Daily, or to learn about our other services, please visit morpheustrading.com.
Deron Wagner is the Founder and Head Portfolio Manager of Morpheus Trading Group, a capital management and trader education firm launched in 2001. Wagner is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis (Bloomberg Press, August 2008), and also appears in the popular DVD video, Sector Trading Strategies (Marketplace Books, June 2002). He is also co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is a frequent guest speaker at various trading and financial conferences around the world, and can be reached by sending e-mail to: [email protected]